National Australia Bank (NAB)

Deutsche Bank has kept its “hold" on
National Australia Bank
and cut its 12 month price target by 1.9 per cent to $26.60.

The broker says NAB’s bad debt increases could continue and the bank may need to increase its provisions, which are light relative to peers.

“Aside from the economic cycle adjustment, NAB’s trading update suggested weak trends in the core business, with flat earnings quarter on quarter. However we think this relates to higher UK bad and doubtful debts rather than underlying earnings. As such we do not think there is a read-through for the sector."

Deutsche has downgraded its earnings per share forecasts by 4 per cent in 2013 to $2.55 per share and cut 2014 estimates by 7 per cent to $2.64 per share, reflecting a building bad and doubtful debt cycle.

The broker has also cut its 2012 net profit forecast by 4.4 per cent to $5.476 billion.

“This risk around bad debts and the potential for further provisioning increases in Payment Protection Insurance in the UK suggests that there may be further downside risk to NAB’s earnings going forward."